So it’s true

So it’s true. Along with announcing support for subscriptions, Apple has confirmed the policy changes that many suspected were behind the rejection of the Sony Reader app: that apps can no longer link to a place to buy content for the app (there can still be such a place, just it must not be linked from the app), and must instead offer an at least as advantageous in-app purchase to do so (Apple first released a press release announcing support for subscriptions and this new policy that would apply to them, then confirmed this new policy would also apply to all paid content used by apps, not just subscriptions).

In the way it’s presented in the quote attributed to Steve Jobs in the press release, it sounds like a wager between two gentlemen: a friendly, interested contest, here to see who can bring the most people in, everything else being otherwise equal. That the publisher earns less in one case, and yet maintains equivalent prices is not unheard of, either: for instance books sold directly often have the same price in Amazon or a bookstore (setting aside any shipping, of course), even though the retailer (and this includes Amazon) takes quite a bit of margin. In fact, in some cases like the tabletop gaming world, publishers have a store on the web but downright encourage customers to buy from their friendly local game store, because they know the benefits these places provide. So on the face of it, this looks reasonable.

Except for this: what value, exactly, does Apple bring to the table here? For in-app purchases that unlock features, there is a quite justified case to be made that, since Apple distributes the app with the feature potentially present, just not unlocked yet, the hosting, screening, and to an extent, DRM services provided by Apple apply as well to in-app purchases, justifying the same 30% cut. However, none of these apply for content in-app purchases: new content can be added all the time, without the need to send a new binary to customers (as an aside, I wonder when Apple added the ability to allow in-app purchases to be added without the need for a new binary), so this content is not coming out of Apple bandwidth, never goes through the approval process, and likely has its own DRM.

This leaves payment processing. Now don’t get me wrong, iTunes is quite awesome payment processing. Back when I was a teenager I really wanted to pay for shareware, but I had no way to do so, and my parents refused to do so for me, so I played pretend by printing the order form (this was even before we had Internet). But a teenager today can buy a prepaid iTunes card with his pocket money pretty much anywhere, or use iTunes credit gifted by his parents, and buy apps for his iPod Touch, the family iPad, or the family Mac. This is awesome. So I think Apple can justify having a payment processing fee slightly larger than, say, that of PayPal. But most definitely not 30%.

Oh, there is, of course, the immense privilege of your app being allowed to run on Apple devices, but it has been established again and again that it is a deadly sin to make it difficult for people to build on top of your platform, because a platform is only as good as what has been built on top of it. No successful platform has ever collected royalties from applications, except for game consoles, but you have to remember consoles are sold at a loss or zero margin (recouped on the games), which is not exactly the case for iDevices.

The end result is that, contrary to the cases I mentioned earlier where publishers would earn less, but still earn money, through another retailer, this leaves publishers with the prospect of selling to Apple device owners at a loss, due to the fee disproportionate with the value Apple brings, as it is certainly larger than the share of profits the publisher can afford to spare for just payment processing (given that they still need to do pretty much everything else). Even if the publisher has a way to sell directly to these same consumers, and even if he was confident most of the sales would occur directly, uncontrolled selling at a loss is still way too big a risk for any publisher to take. I don’t think Apple is seeking rent as much as trying to establish a balanced system, but even with the best intents they have set up a policy that will drive publishers away.

Even if you see no or little problem on Apple’s side with this new policy, consider the following: the end result of this, whatever the reasons or whichever way the faults lie, will be that the Apple “ecosystem” will have its own specific publishers (of books, movies, comics, etc…), either Apple itself or ones that are, in practice, dependent on Apple; publishers different from the ones used by the rest of the world. Is it really what you want? Is it really what Apple wants?

Back in the 80’s, Apple with the Mac had years of advance on everyone else, and made obscene profits exploiting their then current strengths while positioning themselves too narrowly, before this caught up to them in the end. While the mechanisms and kind of partners (application developers/content providers) this is happening with are different, I wonder if it’s not what is going to happen with iOS as well.